Joint v Stephens

[2007] VSC 145

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

No. 9176 of 2004

PETER JOINT	Plaintiff
v
JASON JOHN STEPHENS	Defendant

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JUDGE:	DODDS-STREETON J
WHERE HELD:	Melbourne
DATE OF HEARING:	1, 5, 6, 7, 8 and 14 March 2007
DATE OF JUDGMENT:	14 May 2007
CASE MAY BE CITED AS:	Joint v Stephens
MEDIUM NEUTRAL CITATION:	[2007] VSC 145

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CORPORATIONS – Corporations Act 2001 (Cth), ss.232, 233, 461(1)(f), 461(1)(g), 461(1)(k) – Oppression - Quasi–partnership in corporate form – Plaintiff minority shareholder, director and principal employee – Plaintiff’s employment terminated – Plaintiff excluded from company premises and management of its affairs – Whether plaintiff acquiesced in company’s payment of management and administration fees to companies related to another shareholder – Company paid defendant’s legal costs of the proceeding – Whether plaintiff denied access to company’s books and records – Plaintiff’s threatened breaches of fiduciary duty – Proposed incorporation of new company – Whether plaintiff’s conduct rendered termination and exclusion not unfair – Winding up on just and equitable ground –Order compelling defendant to purchase plaintiff’s shares in company – Date of valuation of plaintiff’s shares.

Cubillo v Commonwealth

Coombs v Dynasty Pty Ltd

Dynasty Pty Ltd v Coombs

Foody v Horewood (No 2)

Jones v Dunkel

Meyer v Scottish Co-operative Wholesale Society Ltd

Rankine v Rankine

Re a Company

Re London of School Electronics Ltd

Re RA Noble & Sons (Clothing) Ltd

Sanford v Sanford Courier Service Pty Ltd

Scottish Co-operative Wholesale Society Ltd v Meyer

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C Northrop	Goldsmiths
For the Defendant	Mr R Randall	Rigby Cooke

TABLE OF CONTENTS

INTRODUCTION

THE PARTIES’ PRINCIPAL CONTENTIONS

The plaintiff’s principal contentions

The defendant’s principal contentions

CREDIT OF WITNESSES

BACKGROUND AND SUMMARY OF EVIDENCE

Incorporation and conduct of company

Administration and management fees

The 20 October 2004 meeting

Incorporation of new company

The email to Mr Cowcher

Events of 22 October 2004

Events after 22 October 2004

Legal fees

Access to documents

The value of the company as at 22 October 2004

The current value of the company

RELEVANT LEGAL PRINCIPLES

FINDINGS AND CONCLUSION

HER HONOUR:

INTRODUCTION

1. By an originating motion dated 16 November 2004, the plaintiff, Peter Joint (“Mr Joint”), applies pursuant to ss.232, 233 and 461(1)(f), (g) and (k) of the Corporations Act 2001 (Cth) (“the Act”) for orders that the defendant, Jason Stephens (“Mr Stephens”), be compelled to acquire Mr Joint’s shares in the company, Program IT Pty Ltd (“Program IT”), on the basis of oppression constituted by terminating the employment of the plaintiff and other staff members, excluding the plaintiff from the premises and management of the company’s affairs, denying him access to the company’s books, paying excessive amounts to entities associated with Mr Stephens and using company funds to pay Mr Stephens’ legal fees for the defence of this proceeding.

1. The plaintiff’s Particulars of Oppression dated 31 January 2006 allege that oppression was constituted by the following conduct: 

1.        Treating the company as a member of a group of companies called the Program Group when it was not a member of such a group.

PARTICULARS

The defendant contends in his affidavit sworn on 15 December 2004 that the company is one of a number of companies within a group known as the Program Group.  There is no common ownership of companies that would create a group of companies of which the company is a member.

2.        Conducting the affairs of the company as if it were part of a group of companies by making payments between companies that were not for the benefit of the company considered separately but were intended for the benefit of the group.

PARTICULARS

The defendant contends in his affidavit sworn on 15 December 2004 that the company is one of a number of companies within a group known as the Program Group.  There is no common ownership of companies that would create a group of companies of which the company is a member.

3.        Purporting to retain solicitors on behalf of the company to give advice and take action against the plaintiff.

PARTICULARS

The company purported to retain Rigby Cooke to write letters on behalf of the company to the plaintiff and his solicitors demanding, amongst other things, that the plaintiff resign as a director of the company.  Copies of the letters may be inspected at the office of the plaintiff’s solicitors by prior arrangement.

4.        Using company funds to pay the defendant’s legal expenses.

PARTICULARS

Payments made by the company are described in an account transaction record, a copy of which may be inspected at the office of the plaintiff’s solicitors by prior arrangement.

5.        Physically removing the plaintiff from the premises of the company on 22 October 2004.

6.        Purporting to terminate the plaintiff’s employment on 22 October 2004.

7.        Excluding the plaintiff from the premises of the company since 22 October 2004.

8.        Excluding the plaintiff from the management of the company since 22 October 2004.

9.        Refusing to give the plaintiff proper access to the company’s books and records.

PARTICULARS

In December 2005 the plaintiff was refused access to the company’s books and records unless he signed a confidentiality undertaking.

10.      Depriving the plaintiff of his computer used for the business of the company.

11.      Failing to hold directors meetings.

12.      Terminating employees’ contracts with the company without consulting the plaintiff and thereby exposing the company to the risk of unfair dismissal claims by employees.

PARTICULARS

On 22 October 2004 the company purported to dismiss Ulla Lonnqvist, Andrew Harris and Sue Hammond.  The dismissals were not discussed with the plaintiff before they occurred and were not justified.  Claims for unfair dismissal were made against the company.

13.      Managing the affairs of the company and conducting its business without reference to the plaintiff as a shareholder or director and failing to consult with the plaintiff as a director in respect of the management of the company, thereby excluding the plaintiff.

PARTICULARS

The plaintiff has been refused any participation in the management of the company since 22 October 2004.

1. Although the originating motion includes an application for relief under s.461(1)(k) of the Act, the plaintiff’s case was, in substance, based on oppression only. The company was not a defendant in the proceeding. At trial, it was not disputed that the company was conducted by the shareholders, Messrs Joint, Stephens and Tan, as a quasi-partnership in corporate form and that their relationship had now irretrievably broken down, thereby justifying an order winding up the company on the just and equitable ground under s.461(1)(k) of the Act. The defendant conceded that, in such circumstances, it would be appropriate to order that the defendant purchase the plaintiff’s shares. There was, however, a dispute over the date at which the company, and consequently, the plaintiff’s shares, should be valued for that purpose. The defendant contended that the shares should be valued as at the date of the order. The plaintiff argued that 22 October 2004 (the date of the termination of his employment and his exclusion from management of the company’s affairs) was the appropriate date.

THE PARTIES’ PRINCIPAL CONTENTIONS

The plaintiff’s principal contentions

1. The plaintiff contended that the company (of which he was a director, a holder of 49% of the shares, the de facto managing director and the principal employee) was conducted as if it were a member of a group of companies associated with Mr Stephens.  The plaintiff, however, had no interest in any other company within the group.  The plaintiff alleged that the company made loans and paid invalid or excessive administration and management fees to other companies within the group without his consent.

1. The plaintiff contended that the parties’ relationship deteriorated from May 2004, at about which time he and Mr Stephens agreed, by an informal “handshake”, that the plaintiff would buy Mr Stephens’ shares for a total sum of $2 million, on terms set out in an unexecuted memorandum of understanding.  The plaintiff required an audit for the purpose of the proposed purchase of shares.  In or about April 2004, he engaged a new bookkeeper.  In June 2004, he engaged an accountant, whom he directed to identify irregular corporate transactions.  The plaintiff contended that from that time, he continued to attempt to buy Mr Stephens’ shares on the terms originally contemplated. 

1. Mr Northrop, counsel for the plaintiff, argued that the practice of charging administration and management fees constituted oppression, but emphasised that the principal elements of oppression occurred on and after 22 October 2004.  He contended that on 22 October 2004, Mr Joint’s employment was unjustifiably and summarily terminated, without warning.  He was escorted from the company’s premises by security guards and, from that date, was excluded from the company’s premises, from all involvement in the management of its affairs and from directors’ meetings.  He received no dividends and was excluded from access to the company’s accounts, books and records.  Mr Northrop further argued that company funds were improperly applied to pay Mr Stephens’ legal fees in defending this proceeding. 

1. The plaintiff contended that the company was successful and profitable, with a growing number of customers up to the date of his departure. 

1. During the course of the trial, the parties’ expert witnesses conferred.  They agreed on almost all issues relevant to the value of the company, both as at October 2004 and currently.  They agreed that, if the administration fees were invalid, the company’s value as at October 2004 was $2,222,500 and the plaintiff’s shares were consequently valued at $979,022 (taking into account the loan repayment).  If the administration fees were valid, the company’s value as at October 2004 was $1,719,000 and the plaintiff’s shares were valued at $732,307 (taking into account the loan repayment).  The plaintiff’s expert witness, Mr McCann, treated the administration fees as invalid, consequently adopting the higher value for the plaintiff’s shares as at October 2004, while the defendant’s expert witness, Mr Ferrier, treated the administration fees as valid, consequently adopting the lower value for the plaintiff’s shares.

1. Initially, the only evidence in relation to the company’s present value was that of Mr Ferrier.  In his opinion, as at 25 August 2006, on the basis of net tangible business assets on an orderly realisation, the company had no value.  That assessment, however, did not take account of the value of the company’s beneficially owned shares in E Program Asia Pty Ltd (“E Program Asia”).  The experts agreed that the value of the shares in E Program Asia would be significant to the present value of the company, but was unknown.  Accordingly, they agreed that it was not possible to state the current value of the company (and hence the plaintiff’s shareholding) without further investigation. 

1. The current value of the company is, Mr Northrop submitted, a matter of conjecture.  He noted, however, that E Program Asia had recently been performing relatively well, having significantly reduced its loan from the company.  Consequently, it is not certain that the current value of the company is less than it was as at October 2004. 

1. The plaintiff nevertheless contended that, as a matter of principle, the company and consequently, Mr Joint’s shareholding, should be valued as at October 2004 for the purpose of an order that the defendant purchase his shares. 

The defendant’s principal contentions

1. The defendant contended that the plaintiff understood and agreed to the company’s payment of administration fees and charging of management fees and was in a position to exert considerable control over the practice.  There was only one instance of a significant dispute over the quantum of the administration fees. 

1. The defendant acknowledged that the parties’ relationship deteriorated from May 2004.  He contended that the plaintiff thereafter expressed the view that the company was worthless, and although he continued to offer to purchase Mr Stephens’ shares, such offers were not on the originally contemplated terms, but for much smaller amounts.

1. Further, the defendant contended that the accountant and bookkeeper retained by the plaintiff were within his “camp” and controlled access to the company’s accounts.

1. The defendant contended that the plaintiff engaged in unsatisfactory conduct including belittling and destabilising the company’s other director, Mr Tan, in the eyes of the staff; sending a hostile email dated 8 October 2004 to Mr Tan (which demanded control of the company, threatened that he would otherwise depart, taking with him all key staff and suppliers, and indicated that he would pay very little for the other members’ shareholdings);  repeating those threats in a meeting with Mr Stephens in early October 2004; arranging and holding a meeting on 20 October 2004 between himself, key members of the company’s staff and two third parties described as “potential investors”, without the knowledge or consent of Mr Tan or Mr Stephens;  initiating steps to incorporate a new company;  and instructing the manager of another company in the group controlled by Mr Stephens that he would arrange for a new company to be incorporated for the purpose of introducing to a third party a software program described as the intellectual property of Program IT. 

1. The defendant contends that the plaintiff’s conduct indicated that he intended to strip the company of its staff, suppliers and of its intellectual property and transfer the business to a newly incorporated entity, unless permitted to acquire control of the company for an unacceptably low sum. 

1. Mr Randall, counsel for the defendant, argued that, in such circumstances, an objective commercial bystander would reasonably conclude that the plaintiff was a threat to, and a potential competitor of, the company.  The termination of the plaintiff’s employment and his exclusion from participation in management were thus not unfair, but a reasonable response to his conduct. 

1. The defendant did not dispute that after the termination of the plaintiff’s employment on 22 October 2004, the plaintiff was excluded from the company’s premises and from participation in management.  He did not deny that company funds were used to pay his legal fees for the defence of the proceeding, but Mr Randall submitted that, in the circumstances, that was neither unfair nor oppressive. 

1. The defendant disputed that the plaintiff was denied access to the company’s books and records.  He contended that such access was initially extended without conditions, but the offer was not taken up by the plaintiff.  Although a confidentiality undertaking was subsequently required for an inspection by the plaintiff and his expert witness, access was not refused and the confidentiality undertaking required was not unreasonable in the circumstances. 

1. The defendant did not dispute that no directors’ meetings had been called after October 2004, and that the plaintiff consequently had not been invited to participate in a directors’ meeting, but denied that that was oppressive in the circumstances.  Mr Randall submitted that oppression must be viewed in context.  In the present case, it could be reasonably concluded, on the basis of the plaintiff’s conduct, that his continued employment and participation in management posed a threat to the company, thus necessitating the action taken.  The plaintiff had issued the proceeding seeking orders which included the winding up of the company.  It was unrealistic to contend that, in such circumstances, the plaintiff should have been invited to continue to participate in the company’s affairs.  The defendant did, however, convene a general meeting of the company in April 2006, and Messrs Stephens and Tan did not use their majority voting power in order to remove the plaintiff as a director. 

1. Mr Randall argued that although the plaintiff received no dividends, the company had never paid a dividend and was not profitable between April 2004 and the plaintiff’s departure in October 2004.  He submitted that the company placed only one tender during that period and bore the additional salaries of the accountant and bookkeeper retained by the plaintiff.  Mr Randall contended that as the company’s business had otherwise continued without interruption after the plaintiff’s departure, the downturn in its performance after 2004 was attributable to the plaintiff’s poor management, including his lack of forward planning, during the period of his employment. 

1. The defendant contended that the company’s value as at October 2004 was $1,219,000, because the administration fees constituted valid expenses.  Mr Randall argued, however, that the company, as a going concern, it was fair that the plaintiff’s shares should be valued as at the date of the order for purchase.

CREDIT OF WITNESSES

1. Mr Joint, Ms Lonnqvist and Mr McCann gave evidence on behalf of the plaintiff.  Mr Stephens, Mr Harris and Mr Ferrier gave evidence on behalf of the defendant.  Mr McCann and Mr Ferrier were expert witnesses, who gave clear and credible evidence.  They conferred during the course of the hearing, after which they agreed on most issues relevant to the valuation. 

1. Mr Joint was, in my opinion, persistently unresponsive and evasive on many issues.  He repeatedly failed to answer fully or directly.  His assertions on a number of issues were inconsistent with the documentary evidence and he frequently retracted aspects of his testimony when pressed.  I did not consider him to be a candid or reliable witness.

1. Ms Lonnqvist presented as a reluctant and defensive witness.  Her evidence in relation to the incorporation of a new company on or about 20 October 2004 was particularly evasive and contradictory. 

1. Mr Stephens was a direct and consistent witness, who appeared willing to answer most questions responsively and to acknowledge adverse points.  Generally, I accepted his evidence, and, in the case of a conflict, I prefer it to that of Mr Joint or Ms Lonnqvist. 

1. Mr Harris gave very limited evidence. 

1. Mr Tan did not swear an affidavit in the proceeding or attend to give evidence, although he was involved in many of the significant events.  Mr Stephens testified that Mr Tan had been seriously ill for several months and is unable to carry out his functions as a director, as he is currently receiving chemotherapy.  Mr Northrop submitted that Mr Tan’s illness does not explain why he did not swear an affidavit at an earlier stage.  Clearly, it would account for his non‑attendance at trial.  While Mr Northrop submitted that I should draw an adverse inference against the defendant based on Jones v Dunkel,[1] facts must first be proved from which such an inference can be drawn.[2] 

   [1](1958-1959) 101 CLR 298.

   [2]At 319.

1. Mr Northrop also contended that I should draw an adverse inference against the defendant due to his failure to call various persons who attended a meeting of employees and others organised by Mr Joint.  It is unnecessary to call multiple persons to give cumulative evidence of a meeting[3] and there is no basis on which to conclude that the relevant persons were in the defendant’s, rather than the plaintiff’s, camp. 

   [3]Cubillo v Commonwealth (2000) 174 ALR 97 at 220; (2000) 103 FCR 1; [2000] FCA 1084.

1. Ultimately, the role of adverse inferences based on Jones v Dunkel was not significant to the determination of this proceeding.  The extensive testimony of the parties who gave evidence was, in my view, a sufficient basis for the determination of the issues in dispute. 

BACKGROUND AND SUMMARY OF EVIDENCE

Incorporation and conduct of company

1. There are 100 issued shares in Program IT.  Mr Joint currently holds 49 shares.  Mr Stephens currently holds 51 shares on behalf of himself and Mr Tan.  Mr Joint and Mr Tan are currently the directors of Program IT.  Initially, Mr Stephens held the 100 issued shares on trust as to 49 of the shares for Mr Joint and on trust as to 51 of the shares for himself and Mr Tan.  Initially, Messrs Tan and Stephens were the directors.  Mr Stephens ceased to be a director in March 2002.  Mr Tan continued as a sole director until 31 October 2002, when 49 shares were transferred to Mr Joint’s name and he was appointed a director.  At a general meeting of the company held in April 2006, Mr Stephens was reappointed a director, but resigned within a day. 

1. Prior to his involvement with Program IT, Mr Joint had professional experience in running a small business dealing with computer sales, desktop publishing, software development and deployment.  He also had experience with software designed to ensure repeat business.

1. Mr Stephens described his occupation as that of a “business owner”.  He establishes and disposes of businesses.  He also conducts a corporate maintenance and refurbishment business.  Mr Stephens is, and has been, the director and shareholder of a considerable number of companies, some of which are described as comprising “the Program Group”.  Companies within the Program Group included Spray Mobile Franchise Pty Ltd (“Spray Mobile”), Re Image Pty Ltd (“Re Image”), Builders Choice Pty Ltd (“Builders Choice”) and Program Development Pty Ltd (“Program Development”).  Mr Stephens regarded Program IT as belonging to the Program Group, but neither Mr Joint nor Mr Tan had an interest in any other company within the Program Group.  As at June 2000, one company within the Program Group, Spray Mobile, was the tenant of business premises situated at Main Road, Eltham, which were too large for its needs.  Mr Stephens and Mr Tan had worked together at common premises in Eltham since June 2000. 

1. In June 2000, Program IT was established.  Mr Joint provided the impetus for the company’s incorporation, but it was based on the discussions of all three parties.  Mr Tan was Mr Joint’s personal and business accountant. 

1. Mr Stephens deposed that Program IT was a “start up” company, which commenced operations without any clients.  Mr Joint deposed that it commenced business with a single client.  On any view, the company had no established client base. 

1. Mr Joint did not dispute that Mr Stephens contributed cash which financed the company at its inception, but deposed that it was repaid within four months. 

1. Program IT traded as “eProgram”.  It was principally a software company.  In particular, its business was to assist other businesses to manage call centres and a methodology of ensuring repeat business (“Customer Relationship Management” or “CRM”) and to distribute two Business Intelligence software applications and one CRM software application in Australia and Asia. 

1. The company also provided staff training and email‑based support for the software applications.  It sold the software throughout Asia.  The company was and is the beneficial owner of the 100 issued shares held by Mr Tan in a Hong Kong registered company, E Program Asia.

1. Mr Joint was the party with technical expertise in software.  He deposed that he was the primary driver of the business and was directly responsible for approximately 98% of the business until the end of 2003 and 80% of the business until the end of 2004.  He did not dispute that he contributed no funds to the company, but testified that he brought in clients. 

1. He deposed that he worked extremely hard, consistently working over 60 hours per week and sometimes over 100 hours per week.  He took few holidays and was directly involved in all the company’s project work.  

1. Mr Stephens acknowledged that Mr Joint worked hard and made substantial contributions to the business, but deposed that Mr Stephens, Mr Tan and others also worked hard.  Mr Joint deposed that his role was to oversee the company’s business.  Mr Stephens was responsible for marketing and finance.  Mr Tan’s role was to oversee the company’s accounts.  Mr Stephens deposed that the business was initially financed by $10,000 in capital provided by Spray Mobile (a company he controlled) and an overdraft of $100,000 from the National Australia Bank (“NAB”).  Initially, the overdraft was guaranteed by Mr Stephens, and then by Mr Tan.  From 31 October 2002, the NAB overdraft was guaranteed by Mr Tan and Mr Joint jointly. 

1. According to Mr Stephens, the conduct of the company’s business was a joint effort.  Mr Joint provided technical expertise and sales assistance.  Mr Tan provided management assistance and Mr Stephens provided finance and marketing assistance.

1. Although Mr Joint was not appointed a director of Program IT until 31 October 2002, he was effectively the managing director of the company from its inception.  He was also the only one of the three participants who was employed by the company.  His final salary was $137,000 per annum.  It is clear that at all material times prior to 22 October 2004, Mr Joint exercised considerable day to day control.  He was not formally appointed a director until 2002 only due to concerns arising from his involvement in litigation with his former employer.  The company contributed to the payment of Mr Joint’s legal fees for the litigation with his former employer. 

1. Although Mr Joint conceded that he was treated as the managing director of the company, he contended that the company’s finances were controlled by Mr Stephens and that he did not understand the financial arrangements. 

1. Mr Joint ultimately conceded that according to the understanding between the parties, Mr Tan and Mr Stephens were to be paid for their services to the company through the administration charges. 

1. Mr Joint deposed that the company was initially successful.  By the end of 2002, it had about 14 major customers; by June 2003, it had 27 customers; by June 2004, there were about 22 clients (a mix of consultancy and maintenance customers).  It had a turnover of over $3,500,000 in 2004.  He deposed that as the Department of Defence was a major client, he was vital to the business because only he and another employee, Andrew Harris, had a special security clearance for the Department of Defence.

1. By May 2004, the relationship of the parties had deteriorated and Mr Joint offered to buy out Mr Stephens.  At about that time, a memorandum of understanding was drafted.  An unexecuted memorandum of understanding (“MOU”) dated 1 June 2004 provided that Mr Joint, as purchaser, would purchase Mr Stephens’ shares for the total sum of $2 million, to be paid by a deposit of $200,000 payable on signing and 36 equal monthly instalments payable on the first day of each month following the payment of the deposit.  The balance of $1,280,000 was to be paid immediately on the happening of specified events. It was to be secured by a mortgage over the shares, which would provide that Mr Stephens could re-take possession of the shares on the occurrence of a material adverse event, including a specified reduction in trading performance, profit or the value of the net assets. 

1. As Mr Stephens held 51% of the company’s shares (on behalf of himself and Mr Tan), the MOU assumed a value of $4 million for the total shareholding in Program IT.  Mr Stephens conceded that there was a “handshake” whereby he and Mr Joint agreed that Mr Joint could purchase his shares for $2 million.  He agreed that Mr Joint required an audit of the business for the purpose of the sale. 

1. By an email to Mr Joint dated 22 July 2004, Mr Tan stated, “The three of us are not tracking well as a team.”

Administration and management fees

1. The plaintiff complained that the company was conducted for the benefit of the Program Group of companies, which was oppressive given that the plaintiff had no interest in any company save for Program IT.   The plaintiff contended that the company paid many administration fees and management fees to other entities owned by, or associated with, the defendant and made interest free loans to such entities without his prior knowledge or approval. 

1. The plaintiff deposed that in January 2004, the defendant pressured him into allowing the company to make a loan of between $50,000 and $75,000 to one of the defendant’s companies for one or two weeks, but the loan was not repaid until after 22 October 2004.  Mr Stephens denied that he pressured Mr Joint in relation to the loan. 

1. The plaintiff deposed that in April 2004, the company could not pay an urgent invoice of a key supplier because it had insufficient funds to make the payment.  In cross-examination, Mr Stephens conceded that (on one occasion only) Program IT could not pay money it owed due to commitments to other companies in the Program Group.

1. Mr Joint deposed that he was concerned about accounting practices from the outset of the company’s operations.  He asserted that the defendant charged the company approximately $90,000 in management fees in the first year of its operation.  He deposed that he questioned the calculation of the charges, but Mr Tan delegated the task to an accountant employed by a company partly owned by Mr Stephens. 

1. Mr Stephens deposed that the company was not financially viable from the outset.  Its fixed and variable overhead costs were subsidised by other companies in the Program Group. 

1. He gave evidence that Program IT’s accounting fees were met by Spray Mobile until Program IT became cash flow positive and generated sufficient income to pay for such administrative expenses. 

1. The financial statements of Program IT record administration charges as follows:

Year ended 30 June 2002	$195,581.55
Year ended 30 June 2003	$  74,346.47
Year ended 30 June 2004	$137,463.61
Year ended 30 June 2005	$147,694.08
Year ended 30 June 2006	$146,146.31

1. The company made an operating profit of $196,731.09 for the year ended 30 June 2001, a loss of $8,627.05 for the year ended 30 June 2002, a profit of $236,586.76 for the year ended 30 June 2003 and a profit of $108,989.43 for the year ended 2004.

1. For the year ended 30 June 2005, the company made a loss of $399,254.04 and for the year July 2005 to June 2006, it made a loss of $417,073.35.  For the period 1 July 2006 to 1 February 2007, it made an operating profit of $616,519.77.

1. For the year ended 30 June 2001, the accounts show income of $620,418.14 and expenses of $423,687.05, including an expense of $22,833.23 for management fees, and loans (investments) totalling $111,623.55 to Spray Mobile ($66,500), Mr Tan ($12,000) and Mr Joint ($33,123.55).  The accounts indicate that the company’s retained profit was $197,177.79, which was counterbalanced by tax losses transferred from Spray Mobile in the sum of $197,177.

1. For the year ended 30 June 2002, the company’s income was $1,121,295.82 which included $225,000 in management fees.  The expenses totalled $1,129,923.87, including administration charges at $195,581.55, and management fees of $1,977.92.  The loans totalled $364,165.85, including a loan of $246,700 to Spray Mobile, a loan of $57,500 to Program Development, a loan of $20,400 to Mr Tan and a loan of $37,772.49 to Mr Joint.

1. For the year ended 30 June 2003, the company’s total income was $2,293,750.32.  The total expenses were $2,057,163.56, which included administration charges of $74,346.47 and management fees of $222,634.55.  The loans totalled $92,804.69, including a loan to Mr Tan of $21,796.29 and a loan to Mr Joint of $54,587.81.  The loans to Spray Mobile and Program Development had been repaid.

1. For the year ended 30 June 2004, the total income was $3,167,793.53.  The total expenses were $3,016,452.94.  The expenses included administration charges of $137,463.61 and management fees of nil.  The total loans were $342,984.11, including a loan to E Program Asia of $70,672.04, Builders Choice of $64,429.98, Re Image of $39,237.71, Mr Tan of $29,346.40 and Mr Joint of $110,003.78.

1. Mr Joint contended that the fees were $90,000 for the year 2000-2001.  The accounts for that year indicated that the management fees were $22,833.  Mr Joint stated that he did not have access to the accounts in 2002 and had not seen the breakdown of what the figure represented. 

1. The balance sheet for 2001 showed a loan to Spray Mobile of $66,500.  There was also an invoice for $34,730 included in the 2002 accounts. 

1. Mr Stephens deposed that the company paid $22,833 in management fees as a contribution to group costs of administrative services, which were worth $90,000 to the company. 

1. He deposed that the interest-free loans were, in fact, payments made for management fees and repayment of loans to or from Program IT from other companies within the group. 

1. Mr Joint denied knowledge of what the company loans to him represented.  He testified that he did not understand this at the time and constantly queried his loan account, but was told not to worry and trusted the other shareholders. 

1. I considered Mr Joint’s testimony on that issue to be unpersuasive.  Mr Joint was the effective managing director of the company.  He had access to all relevant records and information.  I am satisfied that he had a sound and extensive understanding of the company’s affairs, including its financial position and accounts.  I am not persuaded that Mr Joint would be disposed passively to acquiesce in any encroachment on his entitlements or any failure satisfactorily to justify his loan account. 

1. Mr Stephens did not dispute that the accounts prepared for 2001 were prepared with the objective of achieving no taxable income.  He did not deny that the entry of $197,177.79 retained profit had been raised solely in order to minimise taxation.  He denied that the practice was to the disadvantage of Program IT.  The aim, he stated, was to avoid “peaks and troughs”. 

1. He conceded that the management fee of $225,000 recorded as income and the administration fee of $195,000 recorded as an expense in 2002 (which effectively cancelled each other out) were recorded in order to adjust the accounts between the companies in the Program Group in order to minimise taxation.

1. Mr Joint deposed that it was “agreed at the start that management fees and cross‑charging would be done at cost, which by and large was supposed to be shared fairly.” 

1. The accounts of the company referred to both “management charges” and “administration charges.”  “Administration charges” were real expenses incurred by Program IT for services, including the payment for the services of Mr Stephens and Mr Tan, the wages of employees, rental and other utilities, provided by Mr Stephens’ group of companies. 

1. “Management charges”, in contrast, were not genuinely incurred expenses of Program IT, but were an accounting practice directed at a profit shifting between the companies in the Program Group, in order to avoid or reduce taxation. The legitimacy of the practice was not addressed at trial.  Management charges charged to Program IT in one year would be returned to it by a corresponding payment from another group entity in the following year.  As such, management fees were effectively neutral. 

1. Mr Joint conceded that in 2000-2001, Spray Mobile provided three employees and Program Development provided one or two employees to Program IT. 

1. An intermonthly invoicing statement dated 8 April 2004 emailed to Mr Joint by Ms Trucano, the Program Group bookkeeper, set out the percentages of contribution between Program IT, Octopus Pty Ltd (“Octopus”), Re Image and Builders Choice for expense items, such as rent, power, telephone, stationery and the services of Mr Tan, Mr Stephens and Ms Trucano.   

1. Mr Joint conceded that he had agreed to the invoicing specified in the above statement, but maintained that he did not agree with the percentages of 75% for rent allocated to Program IT or the allocation of 30% of Mr Tan’s salary to Program IT. 

1. Mr Joint stated “it [Mr Tan’s salary] was something I wanted to negotiate with … “  He deposed that he had believed that the expenses should be charged to Program IT at cost, rather than at a “mark up”. 

1. When the company commenced operations, it carried on business at premises situated in Main Street, Eltham (“the Main Street premises”).  Spray Mobile leased the Main Street premises from which Program IT initially operated.  Mr Joint conceded that during that time, Program IT was invoiced for a share of rental for the Main Street premises at an agreed rate of 50%. 

1. Mr Joint also conceded that up to April 2004, the parties discussed and agreed on the monthly cost allocations for expense items.  He conceded that he agreed with the allocated proportions and amounts charged for recurrent expense items, although he could not recall the non‑recurrent specific items.  He conceded that Program IT, on occasion, paid invoices directed at other companies in the Program Group, and that if an expense were paid by Program IT on behalf of another company, there would be cross-charging.

1. Mr Joint testified that up until April 2004, “Spraymobile and other Jason Stephens entities were paying all the bills so we [Program IT] were getting cross‑charged for them and vice versa when we paid one of their bills.”

1. In May 2003, Program IT and other companies within the Program Group moved to new premises situated in Arthur Street, Eltham (“the Arthur Street premises”).  Mr Joint agreed that up until the move to the Arthur Street premises, companies other than Program IT met most of the expenses and Program IT paid for them weekly by adjustments.

1. Although Mr Joint professed not to “know the nature of the administration charges, I haven’t seen the transactions for them”, I am satisfied that he was well aware that the administration charges were composed of those adjustments and that he agreed to the charging of administration fees.

1. Mr Joint testified that after the move to the Arthur Street premises, “the invoicing started getting very messy” and was “hard to keep track of.”  He appointed Sue Hammond, a new bookkeeper, in April 2004 and Ulla Lonnqvist, an accountant, in June 2004. 

1. Mr Stephens deposed that Ms Hammond and Ms Lonnqvist were not adequately qualified and answered only to Mr Joint.  He asserted that they were appointed against his wishes. 

1. Ms Lonnqvist was employed initially on a contract basis at a salary of $150,000 per year.  She had formerly practised as a CPA on her own account in 1996, but had worked as an employee prior to commencing work with Program IT.  Ms Lonnqvist was interviewed and engaged only by Mr Joint.  She only met Mr Tan and Mr Stephens after starting work.  In September 2004, she became a fulltime employee as Chief Financial Officer (“CFO”) and her salary was reduced to $80,000. 

1. Ms Lonnqvist’s duties included the supervision of Ms Hammond, some liaison with Mr Murphy of GNS Group (“GNS”), the company’s external accountants, and all typical duties of a CFO.  She compiled the company’s end of year accounts for June 2004. 

1. She did not send any MYOB accounts to Mr Murphy (who made the end of year adjustments to the MYOB accounts) during her employment from June to October 2004 and did not consult with him.  She had only one meeting with Mr Murphy, about three days before her dismissal, and otherwise, had no contact with him. 

1. Mr Joint’s evidence was that he disagreed with cross‑charging, at least from April 2004, and wished to put a stop to it. 

1. He testified that invoices were regular prior to the move to the Arthur Street premises.  He conceded that, in some cases, invoices were not rendered to Program IT unless it had the money to pay.

1. He asserted that after the move to the new premises, when Program IT was the tenant and bearing most of the rent, the invoices were less regular.  Although Mr Joint’s evidence was evasive, it would appear that during the period April/June 2004 to October 2004, no invoices were rendered by Program IT to the other companies, because “we couldn’t agree on a percentage.” 

1. Mr Joint conceded that he had access to the company’s accounts as managing director, but professed not to recall specific details or when items were paid.  I considered that his testimony on that issue was evasive and unconvincing. 

1. Although he did not clearly concede it, the evidence established that Mr Joint had the ability to access the company’s MYOB accounts, both prior to and after April 2004.  He also had access to accounts which showed how expenses were allocated.  Mr Joint was reluctant to acknowledge this.  Mr Stephens did not have access to the MYOB accounts. 

1. Ms Lonnqvist, the accountant, and Ms Hammond, who thereafter handled the bookkeeping for Program IT, controlled the accounting and bookkeeping during the period of their employment, and reported principally to Mr Joint.  I am satisfied that, in such circumstances, he was able to monitor the cross-charging of administration fees. 

1. Ultimately, Mr Joint testified that he did not instruct Mr McCann, the plaintiff’s expert accounting witness, that the administration fees were invalid and should be completely disregarded.  He conceded that he had accepted the agreed allocations prior to the move to the Arthur Street premises, although he maintained that he disputed the allocations thereafter. 

1. Mr Joint also contended that there were many disagreements over the administration fees that Mr Stephens sought to charge.  In cross-examination, he conceded, however, that the major disagreement was whether a 30% loading should be applied to the salaries of Mr Stephens, Mr Tan and Ms Trucano.  He also conceded that the loading in question was imposed only once and did not recur. 

1. A floor plan for the Arthur Street premises prepared by Mr Stephens showed the floor usage allocated to Program IT at 70.82%, to Re Image at 19.37% and to Octopus at 9.81%. 

1. Although Mr Joint disputed the percentages allocated in the floor plan, he was unable to state what details he disagreed with, other than for the identity of the particular Program IT workers shown on the floor plan to occupy offices at a particular time.  Ultimately, he conceded that he “roughly” agreed with the floor plan.  Ms Lonnqvist had not seen the relevant floor plan, but testified that she thought that the correct percentage for rental payable by Program IT during her period of employment from June to October 2004 was about 50%.  She could not comment on other allocations, such as Mr Tan’s salary. 

1. Ms Lonnqvist testified that when she commenced her employment, Program IT  was the tenant of the Arthur Street premises and met payments to the landlord, and paid rates and other expenses.  Telephone bills were paid by Program IT, although Ms Lonnqvist could not say this was the case for all invoices for other services addressed to other companies in the Program Group. 

1. Ms Lonnqvist asserted that, during her employment, there was no invoicing or adjustments from Program IT to the other entities in the Program Group.  She considered that invoices should have been raised.  She was aware that Program IT had paid administration fees to other companies before her employment commenced.  Ultimately, Ms Lonnqvist conceded that she understood that the administration charges paid by Program IT to the other companies included payments for the services provided to Program IT by persons employed by the other companies.  She also conceded that she was aware that Mr Joint had agreed that there should be an administration charge, although he disagreed with a loading.  The work in progress during her employment had included entries for administration charges for wages, rent, power and other services.  She did not agree, however, with the percentages allocated. 

1. No invoices were rendered to other companies during Ms Lonnqvist’s employment.  She agreed that she had discussed this with Mr Joint and had acted solely under his direction.  Ms Hammond posted the entries for April 2004 to 22 October 2004.  Ms Lonnqvist approved those postings and was answerable to Mr Joint.  She did not seek the approval of Mr Stephens or Mr Tan. 

1. Ms Lonnqvist was informed by Mr Joint that E Program Asia was a wholly owned subsidiary of Program IT.  Its loan account was consistent with that status, although she subsequently became aware that all the shares were registered in the name of Mr Tan. 

1. Ms Lonnqvist testified that Program IT paid amounts on behalf of E Program Asia to help it pay its creditors and that that the payments were then adjusted in the accounts and shown as loans to E Program Asia.  Program IT also paid accounts for other Program Group companies. 

1. I am satisfied that Mr Joint agreed with the concept of cross-charging between Program IT and the other entities within the Program Group, to support the company from its inception.  He ultimately expressly conceded that he had agreed with the allocations and cross-charging prior to the move to the Arthur Street premises.  While it would appear that Mr Joint disputed the percentage of cross‑charging after the move to the Arthur Street premises, from April 2004, his appointees controlled the company’s accounts and he was in a position to cause the company to issue invoices or to prevent it from paying invoices if he disapproved of the existing level of charges.  His rejection of the accuracy of the allocation for rent of the Arthur Street premises did not appear to be reasonably based, as he was unable to substantially dispute the floor usage plan. 

1. Therefore, I conclude that the administration fees were charged in respect of services or utilities provided to or used by Program IT.  Mr Joint expressly agreed to the practice, and, up until the move to the Arthur Street premises, he agreed with the percentages and quantum.  Despite one substantial disagreement over a loading for services, which did not recur, Mr Joint, who had full access to the accounts, and the services of a bookkeeper and accountant, apparently took no action to terminate any cross‑charging of which he did not approve, or to insist on the raising of invoices directed to the other companies.

1. Mr Joint conceded that the terms, “management fees” and “administration fees” were “interchanged all the time”. 

1. In a letter of Mr Murphy of GNS, the external accountants to Program IT, dated 27 February 2003 to Ms Willingham of Program IT, Mr Murphy enclosed the financial statements for the year ended 30 June 2002.  The letter stated: 

“You will note that these financial statements contain an amount of $195,581.55 which represents administration fees paid to your other entities.

This amount was put through to minimise the amount of tax payable between the group entities.  If this charge was not put through, Program IT Pty Ltd would have earned a profit for this year of $195,905.25.”

1. Mr Murphy’s description of administration fees in the above letter was a significant factor in Mr McCann’s (the plaintiff’s expert) conclusion that they were not valid expenses. 

1. It was clear, however, that despite Mr Murphy’s reference to administration fees in the letter, the parties proceeded on the basis that administration fees were levied for “real” expenses, whereas management fees were the result of an accounting exercise directed at moving profit between the companies in order to minimise taxation. 

1. I am satisfied that Mr Joint was aware of, controlled the access to, and understood, the accounts of Program IT, and acquiesced in, and consented to, the practice of levying inter‑company administration fees.  I am also satisfied that Mr Joint understood and acquiesced in the practice of charging management fees, and was in a position to impede that practice had he so desired. 

1. In June 2004, the plaintiff requested Ms Lonnqvist to prepare a summary of those company transactions which she regarded as irregular.  Ms Lonnqvist was directed by Messrs Joint, Stephens and Tan to give priority to preparing a report on the company’s loan accounts, including not only loan accounts with individuals, but also with companies under Mr Stephens’ control. 

1. Ms Lonnqvist testified that she had queries about the books and records which she discussed with the previous bookkeeper, Ms Trucano.

1. She conceded that she had only looked at the 2003 and 2004 accounts, because the earlier years had been “closed off” and “rolled over” in the MYOB system.  She had not asked Mr Murphy to provide the earlier accounts.  She had not reviewed 2001 accounts or balance sheets, nor the statement of financial performance for the year ended 30 June 2002. 

1. Shortly after commencing employment with Program IT, Ms Lonnqvist prepared a 19 page spreadsheet setting out her findings on the status of the company’s accounts and accounting procedure and practices.  The request identified a large number of problems, including outdated details recorded with ASIC, problems with GST compliance, unreconciled balances of shareholder and intercompany loans, lack of accepted accounting principles in the company’s financial accounts, lack of any budget, and lack of a procedure for recording, preparing and lodging Business Activity Statements (“BAS”).

1. The draft made a number of recommendations to rectify the identified problems, most of which were incorporated into a final report given to Mr Joint.  Ms Lonnqvist testified that she did not know whether Mr Joint implemented the recommendations.  It appears that the recommendation that the company adopt generally accepted accounting principles was, however, implemented after 1 July 2004.

1. Mr Stephens had a number of complaints about Mr Joint’s management.  He deposed that Mr Joint was overly zealous, did not delegate, was obsessive and wanted his own way to prevail.  He hired Ms Hammond (who needed training and who was replaced by a person on a lower salary) and Ms Lonnqvist without consultation.  Only Ms Hammond, Mr Joint and Ms Lonnqvist had the keys to the accounting office in which all accounts and human resources records were kept.  Accounting queries were referred to Mr Joint or Ms Lonnqvist. 

1. Further, Mr Stephens deposed that only Mr Joint and Andrew Harris had access to the company’s accounting records.  Ms Lonnqvist testified that she and Ms Hammond had access to the password for the accounts program.  Mr Joint conceded that he also had access to the password, at least for specific periods. 

1. Mr Stephens deposed that Mr Joint “walked away” from a deal with a major insurance client and that the relationship with that client was re‑established only by the efforts of Mr Tan.  Mr Stephens further deposed that Mr Joint was divisive, tried to run the company as his own, sought payment without supporting reasons, called a meeting between staff and third parties, sent abusive emails and appeared to threaten to set up a new company.

1. By an email to Mr Joint dated 11 August 2004, Warren Cowcher, of Re Image (another Program IT company), informed Mr Joint of a proposal for patenting Mr Cowcher’s idea of weight pads for railway crossings.  Further emails were exchanged, by which Mr Cowcher sought Mr Joint’s advice and directions about patenting the idea. 

1. By August 2004, Mr Stephens had withdrawn from negotiations with Mr Joint for the sale of his shares. 

1. By an email to Mr Stephens dated 16 August 2004, Mr Joint stated, “I would still like you to consider our original deal…in particular for you to reconsider withdrawing your offer.  I can have the first 3 payments made upfront if you will consider it.”   At trial, he explained that under the “original deal”, he was to pay Mr Stephens $2 million for the company by instalments of $20,000 per share plus $1.5 million on a future sale.  Mr Stephens testified that he withdrew the offer because he did not believe that there was the means to buy him out at the time.  He understood Mr Joint’s email of 16 August 2004 as an offer to purchase only a small percentage of his shares. 

1. The email of Mr Joint to Rob Williams, the company’s sales consultant, dated 18 August 2004, stated, inter alia:

“I have easy access to about $60k, which covers three payments to Jason.  Yes there are people interested but I’m keeping them well away because I know, like you do, that given the right time, we can get a lot more than what the company is worth at the moment (which is close to bugger all.)”

1. On 11 September 2004 Mr Tan, by an email to Ms Hammond, enquired about the deposit of certain funds.  Ms Hammond replied by an email to Mr Tan of the same date (circulated to Mr Joint) which queried “what funds?”, and asserted that that was not what they had discussed.  The email of Mr Joint to Ms Hammond dated 11 September 2004, stated, in relation to Mr Tan, “Do you reckon he’s getting Altziemers [sic]? Serious question.”  Ms Hammond replied “Ulla reckons it’s a short circuit which requires a frontal lobotomy.”  Mr Joint replied, “You can be anaesthetist, Ulla can be head nurse.  I’ll hold the scalpel.  I’ll install a CD player in his head … make him more useful.”

1. The defendant contended, and I accept, that by his emails on 11 September 2004, Mr Joint inappropriately initiated and participated in the disparagement and belittling of his fellow director, Mr Tan, to and by members of staff.  While Mr Joint described the emails as a joke, when taken in the context of the deteriorating relationship of the principals of the business, they encouraged disrespect towards Mr Tan and represented a failure by Mr Joint, as managing director, to observe decorum in the workplace. 

1. The email of Mr Joint to Mr Stephens dated 23 September 2004 stated:

“Jase – Do you want to offload some of your shares to me for some cash in addition to the move.  It can be put through as management fees or a cash in your pocket thing.  I can raise a fair bit at the moment.”

1. The email of Mr Stephens to Mr Joint dated 23 September 2004 stated:

“We need to treat that separately at the moment but I am sure ready to listen to what you have to say when you get back.”

1. The email of Mr Joint to Mr Stephens dated 23 September 2004 stated: “look for 5 shares.  Can have the money by next Friday.”

1. The company’s management accounts for June to October 2004 showed a loss of approximately $40,000.  Mr Joint stated that he did not recall the loss, which he attributed to the failure to factor in work in progress. 

1. Although he professed to be unable to recall it, Mr Joint could not dispute Mr Stephens’ evidence that there were only two tenders for the period June to October 2004, of which only one, QBE, was successful.  Mr Joint did not recall that he had opposed the QBE project due to potential cost overruns.  He conceded that he was not involved in the project.

1. Mr Joint did not dispute that, in the period leading up to June 2004, the company was reliant on its bank overdraft to meet expenses and was obliged to borrow from his father at a very high rate of interest. 

1. At a meeting between Mr Joint and Mr Stephens at a coffee shop in Eltham in early October 2004 (probably 6 October 2004) (“the early October meeting”), the parties discussed Mr Joint’s purchase of Mr Stephens’ shares.  Mr Stephens deposed that at the early October meeting, Mr Joint:

“said to me that if he did not get total control of the shares in Program IT that he would take a job offer elsewhere and that there would be no company left and that he would take the key technical employees and contractors and the intellectual property of Program IT.  Peter said he was sick of not being in a position of total control of Program IT.  He said that he had $100,000 to buy my shares in Program IT and he might be able to raise some more money but not much more than $100,000 to buy me out.  I did not accept this proposal and the negotiations did not go any further.” 

1. Initially, Mr Joint denied that he threatened to take the staff and walk out at the early October meeting, but ultimately conceded that he could not recall his exact comments.  He conceded that he proposed some sort of buy‑out, because “Jason had withdrawn his previous offer to allow me to buy his shares.  So that proposal was discussed again.” 

1. I am satisfied that at the early October meeting, Mr Joint sought to buy out Mr Stephens for approximately $100,000 and threatened that he would leave the company, taking key staff and intellectual property, if Mr Stephens did not comply with his demands. 

1. Mr Stephens acknowledged that throughout September and October, Mr Joint pursued ways to purchase his shares, but he contended that Mr Joint, at the early October meeting, described the company as worthless and offered only $100,000 for his entire share rather than $2 million as contemplated by the original deal, or $100,000 for only five shares, as offered in September 2004, or $100,000 for any amount of shares above 2%. 

1. Mr Stephens agreed that he had requested a copy of the MOU from Mr Joint in October 2004 and testified that he would still have been happy to sell his shares for $2 million at that stage.  He testified, and I accept, that during the relevant period, he believed that Mr Joint was proposing a very low value for his shares “because he absolutely downgraded the company at that point.”

1. On 8 October 2004, Mr Tan sent an email to Mr Joint setting out various options to resolve the situation.  Mr Tan’s email stated:

“Hi Pete,

When the environment was ‘rather tense’ I spoke with Jason and agreed to a strategy of stability, ie not breaking off into factions.  I agreed that if there was to be a descion [sic] to sell it would have to be ‘sell one sell all’.  The corollary to that is that each was not to sell without consulting the other.

Jason is taking it all in yesterday and seeking advice.  My decision is ‘secondary’ due the facts [sic] of the circumstances.  I can voice an opinion but it needs to be ‘persuasive in its own right’ to carry through.

My preferences:

1. I would like US ALL to see it through to an exit in the near future.

2. If there is a sale of Jase or me – I personally would prefer a FULL sale.

3. However I am open to canvassing various views and options.

J.”

1. On 8 October 2004, Mr Joint sent Mr Tan an email in reply, which stated:

“John,

Option One is not an option.  I won’t wait for some fictional sale in the future, as it is well more than 12 months away – I can’t and won’t stomach this for that long.  I can sell myself for $200k a year or more elsewhere.

Option Two is possible, but both of you can forget a retirement fund.  If I left the company, the consultants and the vendors would follow.  Rob would have nothing to sell, so you’d see his arse out the door as well.  The company is worthless without me, I know it, and I’m being constantly reminded of it, by everyone, including people whom you might think would not remind me of that.  Everyone knows what’s going on.

As you’ve just stated – you and Jason are one in the same.  This is the hoodwink I feel I’ve been sucked into because you’ve spent a lot of time convincing me that Jason was shafting you in the past…  Now you are best buddies.  The whole stopping him from throwing you out feels like a charade.  I’ve no issue in paying a fair price for some or all of the shares but the choice is yours ultimately.  I can’t force you to sell worthless shares to me.

I find it interesting that you see this as an all or nothing game.  Given the chance in the past, I could have shafted you, and Jason waved 1% of the company for free under my nose for it.  But I refused that because it was the wrong thing to do.  As I said to you in the meeting the other day – this is a control thing.  I want control of the company – and I’m not ashamed in stating that – I’m not interested in being controlled by you or Jason.  Psycho analyze it all you want.  I would be happy with buying anything from 2 percent upwards – at the moment, given the state of play, I feel that the company is worthless to me with a minority share holding, so there’s little to keep me interested.

Lastly, you said to me a long time ago that when I was ready to take over, you would walk away from the company.  That was a lie.  Don’t pretend that it wasn’t.  Lets just get it out in the open and be honest in saying that there is no trust relationship between the shareholders anymore, and find a away to go our separate ways.

Pete.”

1. At the hearing, Mr Joint stated that the reference to “consultants” meant both the consultants employed by the company and the independent contractor consultants.  The reference to “vendors” meant the suppliers of the software products.

1. Mr Joint testified that the reference to “forget about the retirement fund” indicated that he would now not offer a sum of $1.5 million which had been previously discussed, but he was still offering $20,000 per share, equating to a total of $2 million for Mr Stephens’ shares.

1. He agreed that it was public knowledge that he had been negotiating to buy Mr Stephens out.  The email referred to the fact that he wished to buy all or nothing.  Despite the assertion in the email that: “I can’t force you to sell worthless shares to me”, Mr Joint denied that he had, by the date of the email, formed the view that the shares were worthless and had determined not to carry on business under the existing arrangements any longer.  He testified that he was angry at the time and was still willing to continue with the company. 

1. Mr Northrop contended that Mr Joint was known for explosive, angry outbursts, which quickly blew over, and that after the exchanges of emails 8 October 2004, he continued to work for Program IT and to communicate with Mr Tan and Mr Stephens until 22 October 2004. 

1. In my opinion, the content of Mr Joint’s email of 8 October 2004 indicates that he did not intend to remain working co-operatively with Messrs Stephens and Tan within the company, even for the relatively short term. 

1. The email signals a demand to acquire control of the company which, if not satisfied shortly, would result in his departure, carrying with him all the company’s consultants (which he conceded comprehended both employees and contractors) and the company’s vendors (suppliers of all the essential software products dealt with by the company), so that the principal sales contractor would have nothing to sell. 

1. The email of 8 October 2004 also indicates that Mr Joint had adopted the position that the company was virtually worthless, or was worthless without him.  It is clear that he no longer intended to pay the amounts discussed under the original deal.  While he specifically rejected only the “retirement fund”, it is unclear from the email, what, if anything, he remained willing to pay.  His references to the lack of worth in the company, both pre-dating the email and included in it, indicated that he would not be prepared to pay a significant sum. 

1. While Mr Joint initially rejected such a construction, in my opinion an objective reader, particularly in view of the acknowledged mounting tension, would interpret the email as a threat, rather than dismissing it as a hot-headed outburst. 

1. Mr Joint ultimately acknowledged the threatening quality of the email, but stated that he was angry at the time and did not mean what he said in the email: “I wrote that but it wasn’t my intention…It was my intention to carry on running the business and subsequent emails from that date forward indicate co-operation with Jason.”

1. Following Mr Joint’s email of 8 October 2004, he exchanged some emails with Mr Tan and Mr Stephens in relation to business issues.  Mr Northrop submitted that the later emails demonstrated that business was being conducted as normal and that Mr Joint did not intend to act on his email of 8 October 2004.

1. I am satisfied, however, that Mr Joint did not expressly or implicitly retract the sentiments or views expressed in the email of 8 October 2004.  I do not consider that the subsequent emails on minor corporate matters constituted a retraction or would cause a reasonable person in the position of Messrs Tan or Stephens to conclude that Mr Joint had retracted his statements made in the email of 8 October 2004 and had now decided, after all, to maintain the status quo. 

1. Mr Joint testified that Mr Tan and Mr Stephens did not raise the matter of 8 October 2004 or complain about it. 

1. Mr Northrop contended that, because Mr Stephens did not immediately retain a solicitor and continued to exchange emails with Mr Joint, he did not see the 8 October 2004 email as a serious threat.  Mr Stephens testified, and I accept, that he was very concerned by the email of 8 October 2004 and did not consider that it was simply written in anger.  He construed it as a threat to wreck the company.  He testified that the immediate triggers for consulting solicitors were the email to Warren Cowcher and learning of the meeting with employees on 20 October 2004.  Those matters are discussed in detail below. 

1. On 12 October 2004, Mr Joint, by an email to Ms Lonnqvist, requested that all due per diem allowances be ascertained and paid to him.  The request was consistent with an intention to be paid up to the full extent and to depart if he could not exact control of the company, in circumstances where he had, on various occasions, expressed the view that the company was worthless without him. 

The 20 October 2004 meeting

1. By an email dated 19 October 2004 to Program IT employees, Sue Hammond, Ulla Lonnqvist, Kevin Lee and Andrew Harris, and circulated to Tony Joyce and Mike Novis, Mr Joint arranged for a meeting the following day (20 October 2004) between himself, the relevant staff members and Tony Joyce and Mike Novis. 

1. Mr Joint conceded that he contemplated incorporating a new company at the time.  He conceded that he did not inform Mr Tan or Mr Stephens of the proposed meeting, seek their consent to it or invite them to attend.

1. Mr Joint stated that he did not invite his fellow director Mr Tan or inform him of the meeting because:

“The meeting was to solicit investment of the company and I was at the time to purchase the entire company so John Tan didn’t factor in to that investment at the time because he wasn’t [sic] going to be bought out.” 

1. Mr Joint conceded that investment by Tony Joyce was “one of the thoughts behind the meeting.”  He conceded that at the time, he was “exploring ideas for another company.” 

1. Mr Joint denied that he was “looking at ways to get rid of Mr Tan and Mr Stephens.”  I do not accept that testimony, which is inconsistent with the evidence, including the email of 8 October 2004 and his concession that he intended to purchase the entire company, and hence did not invite Mr Tan to the meeting.

1. Ms Lonnqvist stated that she believed that the purpose of the meeting was to introduce Tony Joyce as a potential investor.  She denied that she was aware that the meeting related to Mr Joint’s plan to run the company without Mr Tan or Mr Stephens.  She stated that she agreed to the meeting off-site because “I thought that the directors themselves had agreed on this.”  I considered that assertion to be unpersuasive and self-serving. 

1. Although Ms Lonnqvist testified that the purpose of the meeting was investment in the company by Mr Joyce, she stated that there was no discussion of whether Mr Joyce would lend funds, acquire Mr Stephens’ shareholding or become a director of the company.  No amount for a proposed investment was discussed.  When asked on what basis it was proposed Mr Joyce would invest, Ms Lonnqvist asserted that he was to consider becoming a shareholder. 

1. Ms Lonnqvist conceded that at the meeting, she explained her role to Mr Joyce and, as CFO of the company, she answered his questions about the financial performance of the company.  With Mr Joint’s approval, she agreed to provide Mr Joyce with the company’s reports and accounts for June 2004, after the disputes were resolved.  She explained to Mr Joyce that there was a dispute about some items. 

1. Ms Lonnqvist stated, “Mr Joint was there present himself, and he had a very good understanding of the company’s financial situation.”  She testified that none of the other staff present gave a presentation.

1. Mr Stephens learned of the meeting with Mr Joyce either more or less contemporaneously or shortly after it occurred.  While it was submitted that he had advance knowledge of the meeting, because it was not a secret, I accept that Mr Stephens learnt of the meeting when it “got out” through an employee, either shortly before it happened or while it was happening.  He testified that he believed that he knew of the meeting by 20 October 2004 and certainly before Mr Joint left the company. 

1. Mr Stephens testified that he believed that there was no point, at that stage, in seeking to discuss the meeting with Mr Joint or in questioning the staff members who had attended. 

1. I am satisfied that Mr Joint arranged the meeting without the consent or knowledge of his co-director or co-participants.  At the meeting, he caused the CFO to reveal details of the company’s financial performance to third parties on the basis that he would have exclusive control and ownership of the company, and the other shareholders’ interest would be terminated.  His conduct could reasonably be perceived as inconsistent with his duty of loyalty and designed to carry out the threats expressed in his email of 8 October 2004. 

Incorporation of new company

1. Mr Joint conceded that he contemplated the incorporation of a new company on or about 20 October 2004, but denied that he had requested Ms Lonnqvist to take steps to implement the incorporation. 

1. The email of Ms Lonnqvist to Mr Joint dated 20 October 2004 stated:

“Re:Incorporation

Hi Pete

(1)       I need your place of birth

(2)       please confirm DOB 17/08/1969”

1. The email of Mr Joint to Ms Lonnqvist dated 20 October 2004 stated:

“(1)    Melbourne (Dandenong)

(2)    Confirmed”

1. When taken to the emails, Mr Joint conceded that he had spoken to Ms Lonnqvist about incorporating a company prior to her sending her email, but stated, “I asked her to explore it, I didn’t actually ask her to incorporate something.”  He then testified that, after responding with the details, “I walked into her office afterwards and said, ‘You need to hold off, we’re still exploring this’.”  He conceded that, at the time, Messrs Tan and Stephens knew nothing about the proposed incorporation. 

1. I considered Mr Joint’s evidence on the incorporation of a company inconsistent with the contemporaneous emails and unpersuasive. 

1. Ms Lonnqvist, when asked whether she had received a request to incorporate a new company prior to sending her email, responded, “I had only received instructions to find out how much a shelf company would cost.”

1. Ms Lonnqvist was evasive when asked why Mr Joint’s date and place of birth were needed in relation to an enquiry solely directed to the cost of incorporation.  She stated, “Those [ details] are usually required if one intends to incorporate a company.” 

1. Ms Lonnqvist asserted that she could not remember whether Mr Joint’s request to incorporate the new company was made before or after the meeting with Tony Joyce.

1. I considered that the evidence of Mr Joyce and Ms Lonnqvist on the issue of the incorporation was unconvincing.  I do not accept it.  I am satisfied that on or about 20 October 2004, Mr Joint requested Ms Lonnqvist to take steps towards the incorporation of a new company. 

The email to Mr Cowcher

1. The letter of Mr Cowcher of Re Image to the Transport Accident Commission (“TAC”) dated 20 October 2004 referred to a software program in relation to the railway crossing idea and asked to meet with the TAC to discuss it.  The letter stated: “This information is given to you in good faith and is considered to be the property of Eprogram Pty Ltd.” 

1. The email of Mr Cowcher to Mr Joint dated 20 October 2004 asked him for his thoughts about the above letter to the TAC.  Mr Joint’s email to Mr Cowcher, in response, dated 20 October 2004, stated:

“Hi Warren, I like it but we shouldn’t be putting that on Re Image letter head – at this time, I’m also reluctant to put it on eprogram letter head.  I can arrange a new company name and letter head if you want.”

1. Mr Stephens testified that when he learnt of the Warren Cowcher email he was concerned.  He spoke to Mr Tan and they decided to see a solicitor.  They considered that it would not be helpful to speak to Mr Joint about it.  It was, in Mr Stephens’ view, too late.  Mr Tan decided to terminate Mr Joint’s employment and to engage Rigby Cooke as solicitors.  Mr Stephens agreed with the decision.  While Mr Northrop contended that Mr Joint should have been consulted, that was unrealistic in the circumstances.  I am satisfied that the email to Mr Cowcher, when taken in context, would reasonably indicate to an objective commercial bystander that Mr Joint intended to establish a new company and appropriate the intellectual property of Program IT or other Program Group entities, in breach of his fiduciary duty. 

Events of 22 October 2004

1. Mr Joint deposed that on 22 October 2004, Mr Stephens asked to meet him at a coffee shop in Eltham.  According to Mr Joint, Mr Stephens arrived accompanied by a lawyer “who started to tell me they were sacking me”.  The lawyer tried to hand Mr Joint a letter, which he refused to accept.  He then left the coffee shop and returned to the company’s premises. 

1. Mr Stephens arranged for security guards to be present at the company’s premises on 22 October 2004.  Mr Joint deposed that when he returned to the company’s premises to collect his personal property, the security guards intimidated him and escorted him off the premises. 

1. Later on 22 October 2004, the company terminated the employment of Andrew Harris, Ulla Lonnqvist and Sue Hammond.  Mr Stephens testified that Mr Tan made the decision to dismiss them.  He denied that they were dismissed because they were aligned with Mr Joint.  Rather, he testified that the decision was made due to their conduct. Mr Harris was subsequently re-employed.

1. On 22 October 2004, Mr Tan called a meeting to inform the company’s staff of what had happened.  The minutes of the meeting relevantly stated:

“Minutes of eProgram employee Meeting – 22/10/04 – 3PM (approx)

Present:        Sean Millard Senior Associate, Rigby Cooke,

Marilyn Awad, Rigby Cook

John Tan, Jason Stephens, Rob Williams, Kevin Lee, Frank, Indy, Terry Flander, Malcolm Hudson

Sean Millard:  This meeting regards the summary dismissal of Peter Joint.

In recent months, Peter has proposed to acquire a majority shareholding in the Company.  Peter has made certain demands.  A dispute has arisen.  Threats have been made sufficient to justify the summary dismissal of:

Peter Joint

Andrew Harris

Ulla (“I don’t know the surname”)

Sue Harris (sic).

This meeting is to remind all remaining employees of their responsibilities towards the company.

All information belongs to the company.

There is to be no contact with clients between now and Monday morning. 

On Monday, you will all have individual meetings with John Tan.

I have prepared a letter for each of you that sets out your responsibilities and what we expect of you.  We will view any transgression of the terms of this letter as a serious disciplinary offence.

Any questions?

Terry:  What about deadlines between now and Monday morning?

John Tan:  Stay behind after the meeting, we will deal with them individually.

John Tan:  Peter has been expressing wish to acquire majority interest in company.  I left the matter in Jason’s hands.  Our feeling was coming round to agree with Peter’s demands.  However, we received an e-mail from Peter that said ‘I will take the business and the technical staff.  The company is nothing without Peter.’  I do not see how one person’s attempt at control can be allowed to jeopardise 18 families.  In recent days, we have been appraised of certain facts that that Peter is taking actions that are undermining the company.  These steps have not been taken lightly.

Jason:  We have had a gun at our heads. 

John Tan:  Peter is a difficult act to follow.  Peter has a place in this company on our terms.  I have always been the one to say ‘Do not take any divisive action.  I was locked out of Accounts.’

This is purely a business decision.  There is nothing personal.

Malcolm Hudson:  By what authority has this action been taken?

Sean Millard:  Management took the decision to terminate the people.

Malcolm Hudson:  By ‘management’, do you mean the Board or the Shareholders?

Sean Millard:  That is not your right to know.

Form letters were handed out to each employee.  The meeting terminated.”

1. Also on 22 October 2004, Mr Joint received at his home a letter from Rigby Cooke on behalf of the company, which stated that his employment had been terminated.  The letter stated:

Dear Mr Joint

On behalf of Program IT Pty Ltd, we confirm the company’s verbal advice to you of this day that your employment has been terminated on a summary basis due to serious and wilful misconduct and is effective immediately.

Your threats to damage the business is recorded in your e-mail to me of 8 October 2004 and clearly indicates you are not prepared to act in the best interests of the company but only yourself.  Further, your divisive conduct in seeking to solicit the support of the company’s employed consultants evidenced by recent activities which have affected the operations and governance of the company is wilful and reprehensible and designed to undermine the position of the company.  As a consequence, you have breached your obligations to act in good faith and in the best interests of the company

Any accrued entitlements will be paid to you in due course.

As a former employee of the company, we would like to remind you of the duty you have under the Corporations Act and at common law, which duty continues despite the termination of your employment. 

Section 183 of the Corporations Act provides that:

“A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

(a)       gain an advantage for themselves or someone else; or

(b)       cause a detriment to the corporation.

A person who aids, abets, counsels, procures, induces, is knowingly concerned in or conspires in, a contravention of section 183 will also contravene the section.

The Corporations Act provides both civil penalties and criminal penalties for a breach of the above duty.  A person can be fined up to $200,000 for a civil penalty, and up to $200,000 or imprisonment for 5 years or both for a criminal penalty.

The duty in section 183 and at common law imposes an obligation on your not to use company information to solicit or poach the clients of the company, a duty to keep confidential any confidential information of the business and a duty not to use any information acquired during the course of employment in a manner that would adversely impact on the company.

Yours faithfully

Sean Millard  Marilyn Awad

Senior Associate  Associate

1. Mr Joint stated that he was shocked when he received the letter because there had been no directors’ or shareholders’ meeting authorising his termination.  He denied that Mr Stephens had told him that his employment was terminated at the coffee shop, but conceded he could not remember what was said prior to the arrival of the lawyer.  Mr Joint’s testimony on that issue was evasive and unresponsive.  I am not persuaded that he did not realise, at the time of the meeting at the coffee shop, that his employment was terminated. 

Events after 22 October 2004

1. Shortly after 22 October 2004, Mr Joint instructed his solicitors, Goldsmiths, in relation to his complaints.  Goldsmiths’ letter to Rigby Cooke dated 26 October 2004 was written on Mr Joint’s instructions.  It stated:

By facsimile:  9321 7900

2 pages

Dear Madam,

Re:     Program IT Pty Ltd – ACN 093 420 742

We act on behalf of Peter Joint who instructs us that he is the managing director of the above company.  You purport to act on behalf of the company.  You are specifically advised by our client that you are not authorised to act on behalf of the company.  There has never been a meeting of the Board of the company which has resolved that you be appointed as the company’s solicitor in respect to this matter, will you please confirm that you do however act personally on behalf of the other director of the company, Mr John Tan and the other shareholder of the company, Mr Jason Stephens.

1. The petitioner contended that the business should be valued as at the date of his exclusion from participation in the affairs of the company.

1. Vinelott J accepted that the appropriate date for the valuation would vary according to what was fair in the circumstances of each particular case.  Although the petitioner was not removed as a director and had retained access to the books of the company, he received no remuneration and the other directors’ remuneration absorbed virtually all of the company’s profits.  It was undisputed that:

“the facts alleged…would establish a case of unjustified exclusion of [the petitioner], a shareholder entitled to play an equal part, together with the other shareholders, in the management of the company and to participate in the income generated from the business activities by receiving fair remuneration within the principle established by Ebrahimi v Westbourne Galleries Ltd.[15]”[16]

[15][1972] 2 All ER 492; [1973] AC 360.

[16]Re a Company [1983] 2 All ER 854 at 859.

1. Vinelott J, however, did not consider that the valuation should relate back to the date of the petitioner’s exclusion, because the majority shareholders had, at an early date, made a “fair offer to purchase the petitioner’s shares on the basis of an independent expert’s valuation”, which the petitioner had rejected.  In such circumstances, “it would be wrong to allow [the petitioner] now to go back to a valuation at an earlier date.”[17]

   [17]At 863.

1. Vinelott J acknowledged that the petitioner:

“has been excluded, with the consequence that he has not shared in the profits of the company.  The profits have all been paid out by way of remuneration to the respondents.  It seems at first sight unfair that having been, at least on the face of it, wrongly and unfairly excluded from the profits of a joint venture, he should not be compensated.”[18]

[18]At 863.

1. He concluded, however, that the petitioner’s plight was a result of his failure to accept a fair offer made at an early stage.  Further, he observed:

“But it is, I think, now impossible, in the light of events as they have unfolded, for [the petitioner] to ask to participate in that income.  There is, in particular, no evidence, indeed, no claim in the evidence that the remuneration paid to the respondents was not remuneration which would have had to have been paid to secure the services they provided so that it would, even in the case of a partnership, fall to be deducted in ascertaining the profit to the partnership.  Any feeling of anxiety I might have had on this score has been to some extent allayed by the fact that [the petitioner] has made a claim for unfair dismissal, which has yet to be heard”.[19]

[19]At 863.

1. In Rankine v Rankine,[20] Thomas J (with whom Macrossan CJ and McPherson JA concurred) stated that, in oppression proceedings:

“What needs to be assessed is the value of the shares at a selected date had it not been for the effect of the oppressive conduct…’[21] 

[20](1995) 14 ACLC 116.

[21]At 120.

1. His Honour stated that Von Doussa J’s observation in Coombs v Dynasty Pty Ltd[22] that “in the valuation exercise the oppressive conduct and the effects which it may have had on the value of the shares is to be disregarded” was apt to mislead if taken in isolation “because the ultimate exercise must focus directly upon the oppressive conduct and take into account so that its actual effect can be eliminated from the valuation.”[23] 

   [22](1994) 12 ACLC 915.

   [23](1995) 14 ACLC 116 at 121.

1. Thomas J further observed that:

“In granting a remedy in favour of an oppressed shareholder … by ordering the compulsory purchase of the applicant’s shares at a stated price, the court is in effect awarding compensation for the respondent’s breach of duty.  The nature of the duty is both subtle and complex …  The ultimate finding of the price that should be paid cannot be made until the nature and effect of the oppression has been identified and its effect quantified or allowed for.”[24]

[24]At 121.

1. His Honour identified numerous alleged acts of oppression in the case before him which, if proved, were capable of affecting the value of the assets.  Some of the allegations related to managerial matters, which would have little effect on the value of the shares, even if they amounted to oppression.  The allegation of wrongful exclusion from management raised the question whether it had any and if so what effect on the financial well-being of the company.  Other issues included alleged improper outlays and ex gratia payments, which would have to be taken into account.

1. Thomas J recognised that:

“it is a cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts… The appellant’s submission is that the fixing of the date of the valuation exercise cannot be fairly and finally determined unless and until the Court has an appreciation of the nature and extent of the oppression upon the value of the shares…

In most cases the order contemplates the valuation at the time of presentation of the petition… But of course other dates are possible…  One factor favouring the petition date is that it is the point at which the claimant elects to claim the remedy.  Another consideration that can favour an early date is that equity leans against permitting a dilatory claimant to gain benefits in an expanding business.”[25]

[25]At 122.

1. It is clear that the Court should select the date finally considered “to best do justice to the parties, and make the necessary adjustments to the valuation of that date.”[26] 

   [26]At 121-2.

1. In Rankine v Rankine[27] McPherson J stated:

“On the question of valuing the shares it is plain that what I said in Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 is, if applied generally, too widely stated. In saying as I did there that ‘the proper course in a case such as this is to assess the value of the petitioner’s shares without reference to the matters that give rise to the oppression’, I was primarily concerned to exclude the impression that the value arrived at for shares ordered to be bought or sold might include some component of a punitive on exemplary character for the acts of oppression alleged.

It was not intended to mean that, in arriving at the value to be paid for shares in such circumstances, nothing was to be allowed for the value of corporate assets shown to have been misappropriated by the wrongdoers, or for the fact that their depredations or mismanagement might have reduced the value of those assets, and correspondingly of the shares themselves.”[28]

[27](1995) 14 ACLC 116.

[28]At 118.

1. In Sanford v Sanford Courier Service Pty Ltd,[29] Waddell J held that oppression of the plaintiff was established on the basis that the defendants had directed business away from the company to another company they controlled and had taken unjustifiably high emoluments for their services after the plaintiff ceased involvement. 

   [29](1987) 5 ACLC 394.

1. Waddell J held that the defendants should purchase the plaintiff’s shares.  His Honour endorsed the approach adopted by Lord Sorn in Meyer v Scottish Co-operative Wholesale Society Ltd where he stated:

“In the circumstances of this case, it is manifest that the only appropriate remedy is to make the majority shareholder, that is to say, the society, purchase the petitioners’ shares at a fair valuation…

In arriving at a fair value, how should we go about it?  I think we should look at the date when the proceedings were begun and ask ourselves what would have been a fair figure for the society to have paid at that date. In doing this, however, it must be remembered that the oppression had begun at an earlier date, with some resultant loss of share value, and what we must endeavour to do is to fix the value which the shares would then have had but for the effect of oppression.”[30]

[30](1957) SC 110 at 156.

1. The decision was affirmed by the House of Lords.  Lord Keith stated:

“It was contended that the value of ₤3.15s put upon the shares was excessive. I see no reason for altering this figure. Lord Sorn has, in my opinion, approached this matter on a correct principle, by considering what would have been the value of the shares at the commencement of the proceedings had it not been for the effect of the oppressive conduct of which complaint was made. This is clearly not a matter on which a calculation can be made with mathematical accuracy or by the application of strict accounting principles…”[31]

[31](1959) AC 324 at 364.

1. Waddell J, applying those principles, considered that the plaintiff’s shares should be valued as at the time the proceedings were commenced:

“What has to be arrived at is a value which is fair in all the circumstances, disregarding the effect of the oppressive conduct which has occurred.”[32]

[32](1987) 5 ACL 394 at 405.

1. In that case, it was relevant that the plaintiff was a minority shareholder who was precluded by pre-emptive provisions from selling the shares without first offering them to the other shareholders at a price certified by the company’s auditor.  The evidence indicated that such an offer would have been accepted by the other shareholders.  The majority shareholders controlled the sale of the business and there was no prospect of it being sold in the foreseeable future.  His Honour concluded that, in such circumstances, the plaintiff’s shares should be valued by capitalising the expected dividend streams as at the date of the commencement of the proceeding “on the assumption that the emoluments provided for the second defendants as directors had been and would be on a commercial basis.”[33]

   [33]At 406.

1. In Foody v Horewood (No 2)[34] Hansen J held, inter alia, that the plaintiff, a 10% shareholder, had established his oppression claim.  His Honour concluded that the plaintiff’s shares were to be purchased at fair value.

   [34][2004] VSC 222.

1. Hansen J stated:

“Date of valuation

At the outset of the trial counsel for the plaintiff submitted that the appropriate date of valuation is the date of judgment, 22 September 2003. The submission equated the date of judgment with the date of acquisition. This accorded with the authorities, and was logical and fair. As to authority, counsel relied upon the oft quoted statement of Nourse J that, “Prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased” [In re London School of Electronics Ltd [1986] Ch 211 at 224]. However, as Nourse J immediately stated, whatever the general rule might be, the overriding requirement is that the valuation be fair on the facts of the particular case. In subsequent authorities the judgment of Nourse J has been accepted as providing the starting point for the inquiry, while at the same time recognising that the date at which to value shares in oppression cases varies having regard to all the relevant circumstances. See Dynasty v Coombs [(1995) 59 FCR 122 at 144 per the Full Court of the Federal Court]; Roberts v Walter Developments Pty Ltd [(1997) 15 ACLC 882 at 907 per Wheeler J]; Profinance Trust SA v Gladstone [[2002] 1 WLR 1024 at 1041]; Lucy v Lomas [[2002] NSWSC 448]; In the matter of Rankine Bros Pty Ltd [Supreme Court of Queensland, unreported, 3 April 1998 per de Jersey CJ].In Profinance Trust the Court of Appeal referred to some of the authorities which illustrated that fairness might require another date. They were: [[2002] 1 WLR 1024 at 1042] where a company has been deprived of its business; where a company has been reconstructed or its business has changed significantly; where a minority shareholder has a petition on foot and there is a general fall in the market; an early valuation will not be directed simply to give the claimant the most advantageous exit from the company, especially where severe prejudice has not been made out; and the parties’ conduct in making, accepting or rejecting offers.”[35]

[35]At [65].

FINDINGS AND CONCLUSION

1. It was not disputed that the company operated as a quasi-partnership in corporate form, based on a common understanding that each of the three participants would participate in the management and work of the business.  The formal status of the participants was largely irrelevant, and Mr Joint acted as the managing director from the outset, although he was not appointed a director until several years later. 

1. Mr Joint was remunerated as a fulltime salaried employee, while Messrs Tan and Stephens were rewarded for their services through the mechanism of administration fees.  The evidence does not, in my opinion, establish that the payment of administration and management fees were imposed without the knowledge and acquiescence of Mr Joint, or that the conduct of the company’s affairs prior to 22 October 2004, was unfair or oppressive to Mr Joint.

1. The parties’ relationship deteriorated from May 2004.  Mr Joint determined to acquire control of the company.  The negotiations for his acquisition of control stalled. 

1. Mr Joint’s conduct included, most significantly, the sending of the email dated 8 October 2004;  the successive references to the company as worthless (coupled with the offers or, more accurately demands, to purchase Mr Stephens’ share at a price greatly reduced from that initially discussed or informally agreed); the arrangement of the 20 November 2004 meeting with company staff to present financial details to third parties, without the knowledge or consent of the other director or shareholders;  the steps towards the incorporation of a new company;  and the instruction to Mr Cowcher not to put correspondence about the potentially patentable idea of the railway-crossing software on the company’s letterhead, indicating that instead, a new company might be incorporated.

1. While exclusion from management in the context of a quasi-partnership is a classic hallmark of oppression, it does not constitute oppression in every case.  Whether oppression is made out will depend on whether an objective commercial bystander would reasonably conclude that the relevant conduct was unfair.  As Nourse J acknowledged in Re London School of Electronics, the conduct of the petitioner may “render the conduct on the other side, even if it is prejudicial, not unfair.”[36]

   [36][1986] Ch 211 at 222; (1985) 3 WLR 474.

1. In the present case, in my opinion, Mr Joint’s conduct prior to 22 October 2004 was the effective cause of the breakdown in the relationship of mutual confidence between the quasi-partners.

1. By October 2004, at the latest, it was clear that Mr Joint would no longer tolerate the status quo of shared management of the company.  Rather, he demanded sole control, through an acquisition of all, or at least a majority, of the shares, for a much reduced consideration, having characterised the company as “worthless” or worthless without him.  He also threatened to depart, taking the company’s key staff, products and intellectual property if his demands for control were not met. 

1. Those intentions were clearly expressed in Mr Joint’s email of 8 October 2004.  While Mr Joint testified that he did not mean what he said in that email, Mr Stephens did not, and the objective commercial bystander would not, in the circumstances, construe it as the product of an ephemeral fit of temper or consider that the subsequent communications on other matters indicated that Mr Joint had changed his fundamental objectives.  The objective commercial bystander would, in my opinion, view Mr Joint’s subsequent conduct in calling the meeting on 20 October 2004, sending the email to Mr Cowcher concerning the intellectual property and instructing Ms Lonnqvist to incorporate a new company, as consistent with, and steps to implement, the threats expressed in the email to strip the company of staff, supplies and intellectual property and to transfer them to a new corporate vehicle, thereby cutting out Messrs Stephens and Tan.  I accept Mr Stephens’ testimony that he construed Mr Joint’s conduct in that way. 

1. In such circumstances, an objective commercial bystander would not view the termination of Mr Joint’s employment and his subsequent exclusion from management as unfair, but as a necessary response to safeguard the interests of the company from the destructive consequences of his actual or threatened breaches of the duty of loyalty and his repudiation of the existing arrangements for shared control. 

1. Mr Joint did not renew his previous offers to purchase Mr Stephens’ shares or make any further offers to buy them.  He issued the present proceeding on 16 November 2004.  On 18 November 2004, pursuant to his instructions, his solicitors lodged a notice of intention to wind up the company. 

1. Although Mr Joint was excluded from management of the company’s affairs, he remained a director, together with Mr Tan, but was not called to directors’ meetings.  Directors’ meetings between Mr Joint and Mr Tan would have been a futility, given the breakdown in the parties’ relationship and Mr Joint’s conduct, which had precipitated the termination of his employment. 

1. Messrs Tan and Stephens could have exercised their majority voting power to remove Mr Joint as a director, but they refrained from doing so.  The formal holding of office was evidently not a significant factor within the quasi-partnership.

1. I am not persuaded that Mr Joint was denied access to the books and records of the company.  He was initially afforded unconditional access, which he did not pursue, and the subsequent requirement that he sign a confidentiality undertaking in relation to inspections with his expert witness would not, in my opinion, be considered unfair in the circumstances of the case.

1. There is no evidence that either the plaintiff or the defendant offered to purchase the other’s shareholding, but in the circumstances, given the breakdown of the relationship and the pending proceeding, such offers were unlikely to have proved fruitful.

1. Mr Joint received no salary, and no dividends.  The company’s financial performance deteriorated from its peak after his dismissal, and precluded the payment of dividends, which had never been paid at any stage.  Its performance has recently improved and the current value of the company is unknown.  The defendant contended that the company’s inferior performance after 2004 was attributable to Mr Joint’s lack of forward planning, the cost of the salaries of the bookkeeper and accountant he retained, and the fact that the company had only one or two tenders and was making a loss between April and October 2004.  While I am unable to draw firm conclusions on the reasons for the downturn in the company’s performance, the plaintiff did not allege that it was due to the misconduct of the defendant, and such a conclusion was not supported by the available evidence. 

1. While Mr Tan and Mr Stephens continued to work in the company and were apparently remunerated for their services through administration fees, it was not contended that the defendant or Mr Tan received payment other than for services actually performed or that they were paid at an excessive rate.

1. Mr Joint no longer received remuneration, but he performed no services for the company, and I have found that his termination would not, in the circumstances, reasonably be viewed as unfair, but rather, as necessary to preserve the company.  It is unnecessary in this context to determine the lawfulness of the termination of Mr Joint’s employment. 

1. The company paid up to $100,000 for Mr Stephens’ legal costs incurred in defence of the proceeding.  The proceeding largely related to the dismissal and exclusion of Mr Joint, and other employees, for alleged breach of duty owed to the company.  The company’s interests substantially overlapped with those of Mr Stephens in the defence of the proceeding.  The company had previously paid Mr Joint’s own legal costs of litigation with his former employer.  No evidence was led on the corporate benefit of the previous payments.

1. In the circumstances, I am not persuaded that the acts or conduct of the defendant or, indeed, Mr Tan, prior to or after 22 October 2004, amounted to oppression.  As in Re RA Noble & Sons (Clothing) Ltd,[37] a reasonable bystander would conclude that, although prejudicial to Mr Joint’s interest, the defendant’s conduct was not unfair, but that Mr Joint, in large part, brought it upon himself.

   [37][1983] BCLC 273.

1. It is not disputed that the relationship between the parties has now broken down and the defendant is willing to purchase the plaintiff’s shares, although the date of valuation is a matter of dispute.

1. In the absence of a finding of oppression, the question of a valuation which excludes the effects of oppressive conduct does not arise.  The overriding requirement remains that the valuation of the company must be fair on the facts of the particular case.  The company in the present case remains a going concern.  The prima facie approach is therefore to value it at the date of the order.  Although the defendant’s expert initially indicated that the company had very little current value, the value of its shareholding in E Program Asia had not been taken into account.  The company’s current value is uncertain.  The business has not been reconstructed and the company’s character has not changed significantly.  There is no evidence that the downturn in the company’s performance was due to any misconduct of the majority shareholders, and some evidence to suggest that it was attributable to the plaintiff’s management prior to his departure. 

1. In all the circumstances, it is fair that the company be valued at the date of the order that the defendant purchase the plaintiff’s shares.

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